Scottish Law Commission (Discussion Papers)

Part 1 Introduction

The DTI's review of company law

1.1      In March 1998 the Department of Trade and Industry ("DTI") launched a wide-ranging review of company law ("the DTI's company law review") and issued a consultation document entitled Modern Company Law for a Competitive Economy ("the DTI's Consultative Paper"). This states that the DTI's objectives in undertaking this review include the promotion of "a framework for the formation and constitution of British businesses which, through an effective combination of the law and non-statutory regulation: ... provides straightforward, cost-effective and fair regulation which balances the interests of businesses with those of shareholders, creditors and others ... [and] promotes consistency, predictability and transparency and underpins high standards of company behaviour and corporate governance".^[1] The consultation document refers to the fact that the Law Commissions were currently examining whether the duties of directors should be put into the Companies Acts so that they should be more widely known and understood. That examination forms part of the current project and is one of the issues with which this consultation paper deals.

Terms of reference

1.2      The role of the Law Commissions, which are independent statutory bodies established by the Law Commissions Act 1965, is to keep under review the law with which they are respectively concerned with a view to its systematic development and reform.^[2] This includes the simplification and modernisation of the law. This project constitutes the Law Commission's second full law reform project in core company law. This project is the Scottish Law Commission's first in core company law although it was consulted on and contributed to the Law Commission's first project in this field.^[3]
1.3      The terms of reference for this project are as follows:

to review Part X of the Companies Act 1985 with a view to considering how the provisions can be simplified and modernised

to consider the case for a statutory statement of the duties owed by directors to their company under the general law, including their fiduciary duties and their duty of care

to review additional provisions of the Companies Acts which the Commissions consider should be reviewed at the same time as part of the above work

and to make recommendations.

1.4      We deal with the two main parts of this project, namely the review of Part X and the consideration of the case for a statutory statement of directors' duties, in sections A and B respectively.^[4] In section C we deal with a number of miscellaneous matters.

Contents of this part

1.5      In this part we deal with a number of preliminary matters relating to the project. Together with Part 2 (Guiding principles for reform) and Part 3 (Economic considerations) it sets out the background to the project and the underlying issues and principles which have guided our approach to it.
1.6      We begin by explaining the reasons for the project, and the legislative history of Part X. Next we set out the methodology we have adopted in reviewing Part X. We then set out what we regard as the central general questions to which we are seeking answers in this consultation paper, and explain the approach to company law reform which we have adopted. This is followed by an outline of the DTI's own work in the field of company law reform in recent years. Next we examine the role of self-regulation in modern company law, give a brief overview of the various sources of rules in this context, and give an explanation of the legal consequences of a breach of these rules. Linked to this is the question of accounting standards which we also consider briefly. We then give a brief overview of the typology of companies incorporated in the United Kingdom, and the framework of regulation of directors. Finally, we mention a number of other matters (territorial scope of the project, the influence of European Community law, and the areas which we regard as outside the project) before setting out in more detail the structure of the consultation paper.

Reasons for this project

1.7      In broad outline Part X of the Companies Act 1985 contains a variety of provisions^[5] designed to deal with situations in which a director has a conflict of interest. It covers an important and sensitive area namely the statutory rules which regulate dealings by directors which affect their company. It is widely perceived as being extremely detailed, fragmented, excessive, and in some respects defective, regulation of directors, and many criticisms have been made of its provisions to the DTI by directors and other users of company law. In those circumstances the DTI requested the Law Commissions to examine the area in detail to see if the provisions could be reformed, made more simple or dispensed with altogether. As respects the second half of the project, consideration of the case for a statutory statement of the duties of directors, this has been attempted on several previous occasions and it seemed that the matter ought to be canvassed fully and publicly. The two main parts of the project are linked since increased awareness, and accessibility of directors' duties under the general law, may enable Parliament to dispense with some of the detailed provisions of Part X.
1.8      Part X raises, within a short compass, many of the issues affecting the reform of core company law as a whole. In particular it raises the issue of efficiency, that is the extent to which the current rules are the most effective way of regulating the key relationship in a company between the directors and their shareholders; the issue of potential over-regulation, that is whether legislation of this complexity is the only option; or whether there should be self-regulation in certain areas; the issue of legislative drafting, that is whether statutory material can usefully be rewritten in a more understandable way; the issue of codification, viz whether important areas of general law should be codified; the issue of non-statutory guidance, viz whether users of companies should be given authoritative^[6] non-statutory guidance as to the law; the issue of decriminalisation, that is whether the criminal sanctions in Part X should be removed; the future handling issue, that is how policy on company law reform should be arrived at in future;^[7] the effect of EC harmonisation on the Companies Acts and so on.

Legislative history of Part X

1.9      Part X is relatively recent in origin. Much of the Companies Act 1985 is derived from provisions first enacted in 1900 or earlier. Part X of the Companies Act 1985 is an exception. As can be seen from the Table of Derivations in Appendix C these provisions only go back to the Companies Act 1928, and many of them come from the Companies Act 1980. The provisions then enacted for the first time and now forming part of Part X are sections 319-322 and 329-347, other than section 330(1) which is derived from section 190 of the Companies Act 1947. The reason for many of the legislative changes in 1980 was the large number of financial scandals that had then recently occurred which led to inspections by inspectors appointed under the Companies Act by the DTI. In many cases the reports were published and so these events were made public. Many of the provisions of Part X represented a hasty legislative response to these events. One example of the findings of inspectors' reports is given in the next paragraph.
1.10      The inquiry into the affairs of Peachey Property Corporation Limited was triggered as a result of concern about certain financial irregularities in relation to the company by the late Sir Eric Miller, Chairman and Managing Director. Examples of transactions that were considered by the inspectors^[8] included the purchase of an emerald and diamond necklace for £42,000 at the company's expense. Sir Eric described this as an investment. It was subsequently sold and the proceeds used to reduce Sir Eric's personal overdraft. He told a series of lies and sent a misleading letter to conceal this. There are many other examples of what the report terms "very grave acts of wrongdoing."^[9] The term "professional fees" was used to conceal a loan to pay another person's income tax bill. A number of other large scale transactions were entered into which were clearly not to the company's benefit. A yacht was hired to entertain business friends and undertake family holidays. Furthermore a company helicopter was used for private use. The Company had an account with a London hotel, the purpose of which seemed to be to extract money for the chairman's own use. Purely personal items such as entertaining and domestic bills were paid for by the company.^[10] He entertained lavishly and gave gifts at company expense.

Methodology adopted in reviewing Part X

1.11      Having regard to the piecemeal way in which Part X has been enacted, we consider that the primary objects of this review must be:

to examine all the provisions in detail;

to investigate whether there were any deficiencies in the detailed wording of the provisions;

to consider whether there is any duplication of regulation;

to consider ways in which the substance of the provisions can be simplified;

to consider whether the language can be made clearer and simpler;

to consider the provisions of Part X in conjunction with the Stock Exchange Listing Rules, accounting standards and voluntary codes; and

generally to consider whether the restrictions imposed by Part X fairly balance the interests of directors on the one hand and those of shareholders on the other.

1.12      To achieve these objects, we have in Parts 4-8 proceeded by first setting out the relevant section (or group of sections) and then reviewing it.^[11] This enables the reader to review the precise text at the same time. The rules in Part X vary in their gravity. In some cases a criminal sanction is imposed.^[12] In other cases there is a potential consequence of voidability if a statutory rule which requires disclosure/approval of a transaction is infringed. Different regulatory mechanisms have been used.^[13] In no case is there a need on the face of Part X to justify the wisdom of the transaction. Likewise the wisdom of the transaction is not made a defence. That question is left to the normal processes within the company. Part X is concerned with what is done and the way in which it is done rather than with the merit of what is proposed.

Central general questions

1.13      In this paper, we shall be asking consultees many detailed questions. But in reading the paper and in considering those questions, it is important that consultees have in mind, and do not lose sight of, the central general questions that underpin this work. The seven general questions are:

(1) Should detailed substantive amendments be made to Part X?

(2) Should large parts of Part X be repealed (for example, because they duplicate areas covered by the general law)?

(3) Should Part X be disapplied where appropriate self-regulatory rules exist?

(4) Should Part X be rewritten in simple language?

(5) Should Part X be decriminalised?

(6) Should directors' duties under the general law be codified? (This involves deciding on the standard of the duty of care).

(7) Should there be a non-binding but authoritative statement of directors' duties under the general law?

Approach to company law reform

1.14      In view of the DTI's wider review of company law, it is right that we articulate for consultees' consideration and views the approach to company law reform on which this consultation paper proceeds. We do this in detail in Part 2 (Guiding Principles for Reform). At this point we would emphasise two points. First, we recognise that directors bear heavy responsibilities to investors, employees, customers and the community. They have many considerations in mind in making their decisions: for instance, they must assess the benefits to the company, form a view as to the changing market and competitive environment, deploy the company's resources to best advantage, make cost savings, watch for business opportunities, see that creditors are paid, supervise organisational change, institute research, maintain good relations with employees, suppliers, lenders, shareholders, governments, regulators and the community and ensure proper financial controls. Directors must also often make up their minds quickly. With all these demands on them, the law regulating their relationship to the company must, as well as being principled and appropriate,^[14] be as accessible and as clear as possible and in general the minimum necessary to safeguard stakeholders' legitimate interests. Unclear law creates unnecessary costs and inhibits decision-making and thus competitiveness. Unnecessary litigation over points of company law is not now, and should not be permitted to become, part of the commercial process in the United Kingdom.^[15]
1.15      Second, we recognise that company law is not simply the preserve of legal practitioners and academics. It is a functional area of law: it must facilitate commercial activity and enable, or at least not prevent, the delivery of benefits to all the company's stakeholders.^[16] Effective company law reform must have that vision. With this in mind, we hope very much that the response to this consultation paper will come not simply from the legal community but also from others. We therefore particularly need assistance from directors and stakeholders. We would encourage them to tell us where they disagree with what this document says. We propose that, unless consultees inform us to the contrary, their responses should be available to the DTI so that they can be taken into account in the course of the DTI's wider review. Consultees' responses to this paper will in that way also contribute to the wider review. Moreover, to enable us to see how the area of company law with which this project is concerned impacts on directors and companies in practice, we have commissioned the economic research which is set out in Part 3, and supported the empirical survey described in Part 16 below.

Departmental review of company law 1991-98

1.16      Some work has already been done on the area covered by this project. In recent years the DTI has reviewed selected areas of company law. Relevant projects have been as follows.

(a) DTI's consultative document on the Companies Act 1985, Schedule 6 (October 1991)

1.17      In October 1991 the DTI published a consultative document Amendments to Schedule 6 to the Companies Act 1985: Disclosure by Companies of Dealings in Favour of Directors. The document contained proposals to simplify the rules in Schedule 6, Parts II and III, regarding the information which must be disclosed in company accounts about loans to directors and connected persons and other arrangements in which directors have an interest.^[17] Draft regulations amending the Schedule were annexed to the proposals. Action was not however taken to implement the proposals in advance of a wider review of Part X of the Companies Act 1985.

(b) DTI Working Party 1993-95 on directors' duties

1.18      In 1993 a working party was set up by the DTI to examine how best to clarify the duties of company directors and to simplify the provisions of Part X of the Companies Act 1985. The members of the working party included business representatives, academics and legal and accounting practitioners. The working party had several meetings but in the event no proposals were published.

(c) The Law Commission's feasibility study on private companies (November 1994)

1.19      The DTI invited the Law Commission, in consultation with the Scottish Law Commission, to carry out a three month feasibility study into the reform of the law applicable to private companies in the context of the needs of small business. This was published by the DTI in 1994.^[18] Although this was not primarily concerned with directors' responsibilities, it was noted that the majority of respondents to one study had supported a proposal to clarify directors' responsibilities.^[19]

(d) DTI's consultative document on disclosure of directors' shareholdings (August 1996)

1.20      In August 1996 the DTI published a consultative document Disclosure of Directors Shareholdings, which contained detailed proposals for an Order under the Deregulation and Contracting Out Act 1994. The aim of the proposals was to reduce the burden imposed by current disclosure requirements relating to directors' interests in their company's shares and debentures, but without introducing scope for abuse.

Role of self-regulation in modern company law

1.21      We referred in paragraph 1.8 above to the role of self-regulation. Company law is not simply the provisions of the Companies Act, nor even the provisions of the Companies Act as supplemented by the large volume of delegated legislation that supplements it. It also consists of various rules, codes and statements of principle which are binding either because they are generally accepted in that part of the business community to which they apply or because they have some authoritative source other than Parliament.^[20] This project demonstrates that a significant interdependency now exists between voluntary codes and formal law but this in turn raises questions as to the way in which they should work together.
1.22      So far as relevant these rules include:

the listing rules of the Stock Exchange

the rules of the Alternative Investment Market.

The Alternative Investment Market ("AIM") was established by the Stock Exchange in 1995 and it provides a market place for dealings in the securities of smaller companies than are listed on the Stock Exchange and with lower costs and requirements.

1.23      The relevant codes are the Cadbury, Greenbury and Hampel codes, now replaced by the Stock Exchange's Combined Code and the City Code on Takeovers and Mergers. We describe the status of these Codes below. There is a high level of compliance with the City Code, and according to the Hampel report,^[21] for the most part larger listed companies have implemented the codes on corporate governance fully.^[22]

The Stock Exchange's Listing Rules

1.24      The Stock Exchange has responsibility for admitting to listing securities that are covered by Part IV of the Financial Services Act. It also admits to listing, on a non-statutory basis, securities to which Part IV does not apply, principally gilt-edged securities. To that end it makes rules governing admission to listing ("the Listing Rules"),^[23] the continuing obligations of issuers, the enforcement of those obligations^[24] and suspension and cancellation of listing. They reflect requirements that are mandatory under European Community Directives,^[25] additional requirements of the Exchange under its powers as competent authority in relation to securities covered by Part IV of the Financial Services Act and corresponding requirements in relation to other securities admitted to listing.
1.25      The Stock Exchange may refuse an application for listing. Where an issuer contravenes the Listing Rules, the Stock Exchange^[26] may censure it or suspend or cancel the listing, in whole or part, of the issuer's securities. Moreover where any contravention of the Listing Rules is due to a failure of all or any of the issuer's directors to discharge their responsibilities it may censure the relevant director. In the case of wilful or persistent failure of a director following censure, the rules provide that it may be stated publicly that in its opinion the director's continued retention of office is prejudicial to investors.^[27] Where the director remains in office following such a statement it may suspend or cancel the listing of the issuer's securities.^[28]

The Stock Exchange's Model Code for transactions in securities by directors, certain employees and connected persons

1.26      The Model Code, which appears in an appendix to Chapter 16 of the Listing Rules ("the Model Code"), sets out a code of dealing that restricts the freedom of directors and certain employees of issuers from dealing in their company's securities. Under Rule 16.18 of the Listing Rules a company is required to ensure that its directors and relevant employees comply with a code of dealing no less exacting than the Model Code, taking all proper and reasonable steps to secure compliance.
1.27      If a company fails to secure the compliance of its directors and employees with a dealing code no less exacting than the Model Code, it will be subject to sanctions for breach of Rule 16.18 of the Listing Rules. If contravention of the Rule is due to the failure of directors to "discharge their responsibilities under the Listing Rules", they too will be subject to penalties. The sanctions for the breach of Rule 16.18 are the same as those for all other Listing Rules breaches.^[29]

The Rules of the Alternative Investment Market (AIM)

1.28      Issuers on AIM and their directors^[30] are required to comply with the AIM rules. Issuers are also required to take steps to ensure that their directors' comply with a code of dealing no less exacting than its Model Code.^[31] Both the rules and AIM's Code regulate transactions involving directors. The provisions are similar to or the same as those of the Listing Rules.^[32] However the AIM rules are less demanding than those of the Official List.^[33]
1.29      As part of its regulatory function in relation to AIM, the Stock Exchange deals with breaches of the AIM rules.^[34] If the Stock Exchange decides that dealings in securities are affecting the integrity or reputation of the market, are being conducted in a "disorderly manner" or threaten investors, it may suspend or discontinue the admission of those securities to trading.^[35] It also has the authority to levy fines against issuers in certain circumstances.^[36] If the Stock Exchange considers that a breach of the AIM Rules is the fault of a director, it may exercise the same sanctions as those available under the Listing Rules.^[37]

Cadbury Report

1.30      The Committee on the Financial Aspects of Corporate Governance (known after its chairman, Sir Adrian Cadbury, as "the Cadbury Committee") was formed in May 1991 by the Financial Reporting Council, the Stock Exchange and the accountancy profession.^[38] Its final report ("the Cadbury Report"), incorporating a Code of Best Practice for all listed companies ("the Cadbury Code of Best Practice"), was published on 1 December 1992. Recommendations of the Cadbury Committee were underpinned by a disclosure requirement to the Listing Rules.

Greenbury Report

1.31      The Study Group on Directors' Remuneration, chaired by Sir Richard Greenbury ("the Greenbury Committee"), was formed on the initiative of the Confederation of British Industry ("CBI") in January 1995 in response to widespread concern about the level of directors' remuneration, in particular following the privatisation of a series of public utility companies.^[39] Its terms of reference were to identify good practice in determining directors' remuneration and prepare a code of such practice for use by UK plc's. Its report ("the Greenbury Report") was published on 17 July 1995.

Hampel Report

1.32      The Committee on Corporate Governance, known as "the Hampel Committee" after its chairman, Sir Ronald Hampel, was established in November 1995 on the initiative of the Chairman of the Financial Reporting Council. It produced a preliminary report in August 1997 and a final report ("the Hampel Report") in January 1998. Its sponsors were the Stock Exchange, the CBI, the Institute of Directors, the Consultative Committee of Accountancy Bodies, the National Association of Pension Funds and the Association of British Insurers. Its remit extended only to listed companies. The Committee was inter alia to keep under review the role of directors, executive and non-executive, recognising the need for board cohesion and the common legal responsibilities of all directors and to address as necessary the role of shareholders in corporate governance issues.
1.33      The Committee's final report stated that the Committee intended to produce a set of principles and code embracing its work and that of the Cadbury and Greenbury Committees and that compliance with this code would be underpinned by the Listing Rules. The objective of the new principles and code would be to secure sufficient disclosure so that investors and others could assess companies' performance and governance practice and respond in an informed way.^[40] In January 1998, the Hampel Committee delivered its code to the Stock Exchange.

The Stock Exchange's Combined Code of Corporate Governance

1.34      Following publication of the Hampel Report, a consolidated Code for corporate governance, combining the Cadbury and Greenbury Codes with the recommendations of the Hampel Committee, was adopted by the Stock Exchange (the "Combined Code"). The Combined Code is appended to but does not form part of the Listing Rules. The Code is also published by the Exchange as a free standing document.
1.35      Paragraphs (a) and (b) of Rule 12.43A of the Listing Rules require companies to make a statement in their annual report and accounts in relation to their compliance with the Combined Code. The Listing Rules also require some aspects of this compliance statement to be reviewed by the auditors.^[41] This statement must explain how the company has applied the principles in the Code,^[42] and give an explanation of why it has failed to comply with any of its provisions during any part of the relevant accounting period.^[43]

The City Code on Takeovers and Mergers

1.36      The City Code on Takeovers and Mergers ("the City Code") is issued by the Panel on Takeovers and Mergers. The Panel is an unincorporated association without legal personality. In a case which establishes that the circumstances in which decisions of the Panel may be reviewed by the Court are restricted, Sir John Donaldson MR described the panel as a "truly remarkable body - both literally and metaphorically it oversees and regulates a very important part of the United Kingdom financial market."^[44] The Code^[45] and the panel operate principally to ensure fair and equal treatment of all shareholders in relation to takeovers. The Code also provides an orderly framework within which takeovers are conducted.^[46]
1.37      The City Code is based upon a number of general principles^[47] and also contains a number of more detailed rules. The Code has not, and does not seek to have, the force of law. However, as was noted by the Court of Appeal in R v Takeover Panel, Ex p Datafin Plc,^[48] although lacking any authority de jure it exercises immense power de facto by way of sanction, principally through the withholding of the facilities of the markets. If a person, authorised by the Financial Services Authority, certain relevant self-regulating associations and certain professional bodies recognised under the Financial Services Act 1986, fails to comply with the Code or a ruling of the Panel, its regulator may in certain circumstances, take disciplinary or other action against it, including withdrawal of its authorisation.^[49]

Legal consequences of a breach of the self-regulatory rules

1.38      Non-compliance by a company or one of its directors with a self-regulatory rule cannot of itself result in the commission of a criminal offence or give rise to an action for damages or other relief under the general law. The question arises whether there are any situations arising in company law in which the court will grant relief on the basis that the matter of which complaint is made is a breach by a director of a self-regulatory rule, or alternatively whether there are circumstances in which the court will attach weight to that factor.^[50]
1.39      Non-compliance with a voluntary code or self-regulatory rule may, in future, be a matter to which the court has regard when deciding whether a director is unfit to be a director or ought to be disqualified under the provisions of the Company Directors (Disqualification) Act 1986 but, so far as we are aware, there is no decided case in which this question has arisen thus far.
1.40      There appears to be a conflict of authorities on the question whether non-compliance with a self-regulatory rule can be unfair prejudice for the purposes of section 459 of the Companies Act 1985. Under that section a shareholder can apply to the court for relief (of any kind) where the company acts in a manner which is unfairly prejudicial. The courts have given guidance on what constitutes unfairly prejudicial conduct for this purpose. Thus in Re Saul D Harrison plc^[51] the Court of Appeal held that in general a legal wrong, for example a breach of duty by a director, must be shown, though there is a category of cases where it is sufficient for the applicant to show that he has a legitimate expectation that the affairs of the company will be conducted in a particular way. The question is whether this guidance excludes the possibility of unfair prejudice where a company breaches a voluntary code. In Re Astec(BSR) plc,^[52] where it was held that in a public company no question of legitimate expectations could arise and moreover that the exercise by a majority shareholder of its legal rights contrary to the Cadbury Code of Best Practice was not capable of giving rise to a claim for unfair prejudice, even though investors expect companies to comply with voluntary codes on corporate governance, Jonathan Parker J said:

So far as corporate governance is concerned, members of the public buying shares in a listed company may well expect that all relevant rules and codes of best practice will be complied with in relation to the company. But that expectation cannot, in my judgment, give rise to an equitable constraint on the exercise of legal rights conferred by the Company's constitution (of which the Listing Rules, the City Code and the Cadbury Code form no part) so as to found a petition under s 459. It is in essence little more than an expectation that the company's affairs will not be conducted in a manner which is unfairly prejudicial to the interests of the members generally, or some part of its members, an expectation which one would expect to be present in virtually every case.

1.41      These views may be contrasted with what was said in Re BSB Holdings Ltd (No 2) Ltd^[53] in which the court said:

... in my judgment, it is not the effect of Re Saul D Harrison & Sons plc that a remedy under s 459 can be given only if the directors have acted in breach of duty or if the company has breached the terms of its articles or some other relevant agreement. These matters constitute in most cases the basis for deciding what conduct is unfair. But the words of the section are wide and general and, save where the circumstances are governed by the judgments in Re Saul D Harrison & Sons plc, the categories of unfair prejudice are not closed. The standards of corporate behaviour recognised through s 459 may in an appropriate case thus not be limited to those imposed by enactment or existing case law.

1.42      On this basis it would follow that in certain circumstances a breach of a voluntary code is capable of constituting by itself conduct which was unfairly prejudicial to the interests of a complaining shareholder, even in a public company. On that basis the courts could give some legal underpinning to the voluntary codes.
1.43      It is however clear that the codes can at the very least constitute benchmarks by which the courts can determine whether conduct is unfairly prejudicial. Thus in Re Macro (Ipswich) Ltd^[54] the question was whether a majority shareholder in a private company and director could properly appoint an employee as his sole co-director. The court held:

Given the presence of minority interests, the absence of an independent director would in my judgment be prejudicial to the position of the plaintiffs as shareholders in the companies. If support were needed for such proposition, it can be found in the recent report of the Committee on the Financial Aspects of Corporate Governance (the Cadbury Committee) published in December 1992. This report, which has been accepted by, inter alia, the Stock Exchange, emphasises that no one individual within a company should have unfettered powers of decision and that, where the chairman is also chief executive, there should be a strong and independent element on the board. While that report is directed to listed companies, the desirability of having a truly independent board is applicable to all cases where there are minority shareholders.^[55]

1.44      In conclusion, while self-regulation has many advantages in that it offers flexibility and the ability to act more speedily than where legislation is required, when it comes to seeking remedies for breaches of self-regulatory rules in a court of law, the civil and criminal remedies available are far less than those available for a breach of a rule of the general law or of some legislative provision.

Accounting Standards

1.45      The Companies Act 1985 provides for "accounting standards", that is statements of standard accounting practice, to be issued by bodies prescribed by regulations.^[56] The Accounting Standards Board has been prescribed for this purpose.^[57] Accounting standards do not have the force of law. However, the annual accounts of a company (other than a small or medium-sized company)^[58] must state whether the accounts have been prepared in accordance with applicable accounting standards^[59] and give particulars of any material departure from those standards and the reasons for the departure.^[60] The balance sheet included in the annual accounts must show a true and fair view of the state of affairs of the company as at the end of the financial year and the profit and loss account must show a true and fair view of the profit or loss of the company as at the end of that year.^[61] Whether a true and fair view is given is a question of law but the court will take account of the views of the practices and the views of accountants. The fact that a standard has been issued increases the likelihood of the court saying that compliance with the standard is necessary for the purpose of showing a true and fair view. The issue of standards has in itself created an expectation on the part of users that accounts will comply with accounting standards except where there is good reason why they should not do so.^[62] In the field of accounting standards there is therefore a measure of underpinning in the Companies Act.

Typology of companies

1.46      In considering the issues raised by this consultation paper, consultees should bear in mind that there are several different types of company.^[63] The vast majority of companies incorporated in Great Britain and Northern Ireland are private companies. As at May 1998 there were 1,201,089 companies on the active register for Great Britain.^[64] This includes 66,098 active companies registered in Scotland. There are 11,700 public companies on the register for Great Britain of which 507 are registered in Scotland. As at the same date there were 15,529 companies registered in Northern Ireland of which 51 were public companies. There are 2,136 listed companies on the UK market at the Stock Exchange and 521 on the International market.^[65] There are 310 companies in AIM.^[66]
1.47      Very many private companies are owner-managed, that is to say they have a small number of shareholders many of whom also participate in the management of the company. In these companies, there are fewer outside factors to impact on the conduct of directors. For instance, the Listing Rules and voluntary codes do not apply. Thus, despite their participation in the business, the shareholders continue to need legal safeguards and effective remedies.^[67] But there is a higher level of involvement and informality in owner-managed companies and this has to be taken into account. High standards of corporate behaviour need to be promoted in companies of all types.
1.48      There are no statistics for the number of subsidiary companies.^[68] However, it is common knowledge that many companies are members of groups of companies. The law has to take account of this. It means, for instances, that disclosure to shareholders is often unnecessary, and shareholder approval a formality,^[69] where one company is a wholly-owned subsidiary of another body corporate, wherever incorporated, and is fully solvent.

Regulation of directors

Duties of directors

1.49      Numerous duties are imposed on directors by statute and by the general law. There are no formal qualifications for company directors, though a number of organisations and some employers provide training courses. Reference is made below^[70] to the statutory liability for wrongful trading to which directors have been subject since 1985^[71] to contribute to the assets of their company in the event of its liquidation if the company continued to trade after they knew or ought to have known that there was no reasonable prospect of its paying its liabilities to creditors. This liability can be imposed on directors by the court on the application of the liquidator unless they took every step which they ought to have taken to minimise the loss to creditors.^[72]

Enforcement of directors' duties

1.50      In October 1997 the Law Commission, in consultation with the Scottish Law Commission, published its final report on Shareholder Remedies.^[73] It recommended inter alia that there should be for England and Wales a new rule of court and for Scotland a new statutory provision which sets out in modern and accessible form the circumstances in which the courts will permit a derivative, or in Scotland a shareholder's, action^[74] to be brought. This would facilitate such an action where the cause of action arises out of a breach, or threatened breach, of duty by a director to his company, including negligence. It also recommended that there should be a statutory presumption in unfair prejudice proceedings^[75] for smaller companies so as to make the outcome of litigation more certain and help encourage parties to settle claims at an early stage.^[76] In the consultation paper the Commission set out six guiding principles^[77] which we set out below^[78] and which were used in framing the recommendations in the final report.

Disqualification of company directors for unfitness

1.51      Disqualification^[79] was first introduced by the Companies Act 1929. After various legislative changes a specific piece of legislation, what is now the Company Directors Disqualification Act 1986, was enacted. The Act requires the court to disqualify a director for a minimum two year period if it makes a finding of "unfitness."^[80] It is a question of fact whether a director is unfit, though past decisions of the court may be helpful in identifying particular circumstances in which a director would clearly be unfit.^[81] A second important area is that a disqualification order^[82] may be made^[83] in respect of a person convicted of an offence in connection with the formation, promotion, management or liquidation of a company or with the receivership of the company's property. In the year ended 31 March 1997, 1219 disqualification orders were notified to the Secretary of State.^[84]

Part X and the law relating to directors' duties and its application to England, Wales and Scotland

1.52      This project is concerned with Part X of the Companies Act 1985 and with the case for a statutory statement of directors' duties. The Companies Act 1985 applies to England, Wales and Scotland and the questions which we have been asked to consider are not areas in which material differences currently exist between the law of England and Wales and that of Scotland.

Northern Ireland

1.53      This project is not strictly concerned with the review and reform of Northern Ireland law. However the law of Northern Ireland in this context is for all practical purposes the same as that applying in England, Wales and Scotland. The equivalent of Part X of the Companies Act 1985 is to be found in Part XI of the Companies (Northern Ireland) Order 1986. The Law Reform Advisory Committee for Northern Ireland, which in the field of civil law carries out functions similar to the Law Commissions in England and Wales and Scotland, is taking a close interest in this project and any reform of English law is likely to lead to equivalent changes in Northern Ireland law which normally closely follows developments in English company law.

European Community law

1.54      Since 1972 a driving force in amendments in the Companies Acts has been the need to implement directives of the European Community.^[85] There are examples of this in sections 322A and 322B in Part X. We have considered whether there is any pending harmonisation measure in the field of company law which might affect the area covered by this project, but we are not aware of any at this stage. The draft fifth directive^[86] on company law contains provisions on the structure and liability of the board of directors but this proposal is effectively dormant and there is as we understand it no early prospect of its being moved forward. The Court of the European Communities has recently confirmed that the first EC directive on company law,^[87] which restricts the circumstances in which a company can rely on the lack of authority of one of its organs, does not affect national rules as to the effect of transactions authorised by directors having a conflict of interest.^[88]

Matters outside this project

1.55      Certain matters affecting the duties of directors are outside the project though they may be dealt with in the course of the DTI's wider review of company law. They include the question whether directors should owe duties to persons other than the company such as employees and the community,^[89] and the question whether the duties should be for other reasons altered. Likewise this project is not concerned with any duties of good citizenship the company may owe to the community^[90] or with the question whether companies should support philanthropic or charitable causes. This project assumes that the board is structured on the present UK model and therefore contains no discussion of two-tier boards such as are found in Germany and does not examine the issues of who should be directors. The project does not discuss insider dealing, or review the general law on remedies for breach of duty or examine the amount of directors' remuneration^[91] or the law relating to the disqualification of directors or with any special rule applying to charitable companies.

Structure of this consultation paper

1.56      This consultation document deals with the subject matter of the project in the following manner:

we start by identifying principles for the reform of the relevant law (Part 2);

we then include discussion of the economic considerations underlying the relevant law and its reform (Part 3);

the rest of the paper falls into three parts:

Section A deals with Part X of the Companies Act 1985-

Substantive Improvements 1: sections 312-323 (Part 4);

Substantive Improvements 2: sections 324-329 (Part 5);

Substantive Improvements 3: sections 330-342 (Part 6);

Substantive Improvements 4: disclosure requirements (Part 7);

Substantive Improvements 5: "connected persons" etc (Part 8);

Further options: repeal and rewriting (Part 9);

Decriminalising Part X of the Act (Part 10);

Section B deals with the case for a statutory statement of directors' duties-

fiduciary duties: the current law (Part 11);

duty of care: the current law (Part 12);

previous proposals for a statutory statement of duties (Part 13);

statement of directors' fiduciary duties: options for reform (Part 14);

duty of care: options for reform (Part 15);

Section C deals with miscellaneous issues, namely-

the proposed empirical survey (Part 16); and

the different categories of director (Part 17).

1.57      A list of the questions for consultees appears in Part 18.
1.58     Acknowledgements


We gratefully acknowledge the assistance we have received from the persons and bodies listed in Appendix O. We would like to express our particular thanks to Professor D D Prentice of the University of Oxford, Richard Nolan of St John's College, Cambridge and Robert Bertram, visiting Professor at Edinburgh and Heriot-Watt Universities, who have acted as our consultants on the project. We should also like to thank Dr Deakin of ESRC Centre for Business Research at the University of Cambridge who carried out the study of the economic considerations applicable to this project which is set out in Part 3 and who is assisting us with the empirical research described in Part 16. We are also grateful to Professor Wooldridge of Notre Dame University in London for permitting us to use the summary of German law which appears in Part 12.

Note 1   Paragraph 5.1.    [Back]

Note 2   Law Commissions Act 1965, s 3(1). The Law Commission is concerned with the law of England and Wales and the Scottish Law Commission is concerned with the law of Scotland.    [Back]

Note 3   The first was Shareholder Remedies (1997) Law Com No 246.     [Back]

Note 4   We have also included in Section A consideration of Sched 6, Pt II and Sched 13 to the Companies Act 1985. Note that, unless stated otherwise, section references throughout this paper are to the Companies Act 1985.    [Back]

Note 5   The provisions in Part X include a prohibition on paying remuneration to directors tax-free (s 311); various prohibitions on making undisclosed side-payments to directors when they leave office (ss 312-316); a provision which makes it obligatory for directors to disclose certain interests to their board (s 317); provisions for making directors' service contracts open for inspection by members (s 318); restrictions on transactions which a company can enter into with a director or a person connected to him (ss 320-322); a provision imposing liability on directors who cause their company to breach the terms of its constitution by entering into a transaction with him or a person connected with him (s 322A); an obligation on sole member companies to record contracts with the member when he was also a director (s 322B) a prohibition on directors dealing in options in the company's shares (s 323); an obligation on the director to keep the company informed of interests in shares and on the company to keep a register of those interests and if the company is listed to notify them to the Stock Exchange (ss 324-329); extensive restrictions on the loans and other financial transactions that a company can enter which benefit a director or in some cases a person who is connected with him (ss 330-342).    [Back]

Note 6   This consultation paper refers to the draft statement of duties suggested below (see paras 14.32-14.40) as "authoritative" because it would be propounded by the DTI, and not by a private body. The statement would not, however, have legal force.    [Back]

Note 7   Discussion of this issue is, however, beyond the scope of this project.    [Back]

Note 8   Raymond Kidwell QC and Stanley Samwell FCA. SeePeachey Property Corporation Limited, investigation under s 165(6) of the Companies Act 1948, HMSO, 11 December 1978.    [Back]

Note 9   aragraph 167.    [Back]

Note 10   Indeed section 13 in the report is headed "His Private Bank" .    [Back]

Note 11   The statutory material is included in the form now in force. Brackets are used to indicate repeals or amendments made since the Companies Act 1985. References to the amending or repealing provision are not included but can be found inButterworths Company Law Handbook, (11th ed, 1997).    [Back]

Note 12   Sections 314(3), 317(7), 318(8), 322B(4), 323(2), 324(7), 326(2)(3)(4) and (5), 328(6), 329(3), 342(1), 342(2), 342(3) and 343(8).    [Back]

Note 13   See para 3.32 below.     [Back]

Note 14   Appropriate law in this context must draw a balance. It must reflect the responsibilities which directors are expected to discharge to the company and other constituencies, but not prevent them from managing the company's business so that it performs well, taking account of the demands placed on directors by commercial life.    [Back]

Note 15   There are a number of reasons why this is so, including the general absence in fact of contingency fees, the costs shifting rules, the sheer expense of litigation and the lack of juries in civil trials. Moreover the courts in general seek to stop tactical litigation: see for example R v Takeover Panel, ex p Datafin Plc [1987] 1 QB 815 (CA) and also the restrictions placed by the courts on the remedies of unfair prejudice and derivative actions described in Shareholder Remedies (1997) Law Com No 246, paras 3.5-3.7 and 6.1-6.4, and Appendix D, and our recommendations in that report would retain that approach. We are not saying that tactical litigation does not occur but rather that it is not as prevalent a feature of commercial life in this country as it is in some other jurisdictions and should not be permitted to become more prevalent. We do not wish to suggest that a party should be criticised for enforcing a right that he has for commercial advantage, or that judicial scrutiny does not serve a valuable process; our comments are directed to what is in reality speculative litigation designed to bring a negotiating advantage.    [Back]

Note 16   We use the term stakeholder to describe all those with whom a company has some form of relationship. The term includes shareholders, employees, customers, suppliers, lenders, creditors and the community.    [Back]

Note 17   The provisions regulating the matters form part of Part X.    [Back]

Note 18   Company Law Review: The Law Applicable to Private Companies. A consultative document (November 1994). URN 94/529.    [Back]

Note 19   Ibid, para 5.42.    [Back]

Note 20   See Arden, "The Changing Face of Company Law" (1995) 10 BJIB & FL 210.    [Back]

Note 21   Final Report of the Committee on Corporate Governance, chaired by Sir Ronald Hampel (28 January 1998); see paras 1.32-1.33 below.    [Back]

Note 22   Hampel Report, para 1.10.    [Back]

Note 23   For example the Listing Rules lay down, inter alia, requirements relating to incorporation, accounts, nature and duration of business activities, directors, and working capital.    [Back]

Note 24   See para 1.25 below.    [Back]

Note 25   Such as the Admissions Directive (Council Directive 79/279/EEC co-ordinating the conditions for the admission of securities to official stock exchange listing).    [Back]

Note 26   Rule 1.10. Technically the Quotations Committee is the principal actor save where the issuer or director concerned agrees to a private censure by the Stock Exchange and the Stock Exchange considers that to be the appropriate sanction.     [Back]

Note 27   Rule 1.10.     [Back]

Note 28   In addition to the sanctions described in this paragraph, the Government has stated that legislation is being prepared which will give the Stock Exchange the power to fine issuers and directors for breach of the Listing Rules; see Written Answer Hansard (HC), 6 May 1998, vol 311, cols 383-384; and Financial Services and Markets Bill: A Consultation Document (July 1998), para 13.4. See also paras 5.32 n 39 and 10.34 nn 65 and 67 below.    [Back]

Note 29   See para 1.25 above.     [Back]

Note 30   Who can be personally censured for breach of AIM rules. See Rule 16.36(a).    [Back]

Note 31   See Rule 16.9(b). The Model Code for AIM Companies is set out in Appendix 12 of the AIM Rules.    [Back]

Note 32   Compare, for example, paragraphs 2 to 21 of the Model Code in the Stock Exchange's Listing Rules with paragraphs A 12.2 to A12.20 of the Model Code for AIM Companies.    [Back]

Note 33   See Rule 16.11(c).    [Back]

Note 34   Decisions of the exchange can be appealed to the AIM Appeals Committee.    [Back]

Note 35   See r 16.35.    [Back]

Note 36   For breaches of r 16.32 (see r 16.36).    [Back]

Note 37   See r 16.37 of the AIM Rules and r 1.10 of the Stock Exchange Listing Rules.    [Back]

Note 38   Considerable interest in corporate governance has since developed in many parts of the world. For example, in November 1994, South Africa's King Committee published a report and recommendations on the financial aspects of corporate governance. The report contained a Code of Corporate Practices & Conduct intended to apply to all companies listed on the Johannesburg Stock Exchange's main board as well as large public entities, banks, financial and insurance bodies and large unlisted public companies ( The King Report on Corporate Governance, November 1994). More recently an advisory group established by the Organisation of Economic Co-operation and Development (OECD) has recommended that the OECD should draw up a code of corporate governance: see Public Law for Companies (1998) vol IX , May 1998, pp 10-11.    [Back]

Note 39   As noted in the comment at para 1.7 of the Hampel Report.    [Back]

Note 40   Hampel Report, para 1.25.    [Back]

Note 41   Rule 12.43A, final paragraph; but see now Auditors' Responsibility Statements and Auditors' Reports on Corporate Governance issued by the Auditing Practices Board (June 1998) which proposes a comprehensive auditors' responsibility statement to be included in annual accounts, and removal from the Listing Rules of the requirement for auditors to review compliance with certain aspects of the Combined Code.    [Back]

Note 42   Rule 12.43A(a). The Principles are contained in Part 1 of the Combined Code.    [Back]

Note 43   Rule 12.43A(b). The Provisions are set out in Part 2 of the Combined Code. Although the Combined Code and new r 12.43A were published on 25 June 1998, the compliance disclosure requirements in 12.43A(a) and (b) will first come into effect in relation to annual reports and accounts published in respect of accounting periods ending on or after 31 December 1998.    [Back]

Note 44   R v Takeover Panel, Ex p Datafin Plc [1987] QB 815, 824. In general the court will only intervene in decisions of the Panel by making declaratory orders in retrospect, thereby allowing contemporary decisions to stand.    [Back]

Note 45   The current edition of the City Code was updated on 23 July 1998.    [Back]

Note 46   The Introduction to the City Code provides fuller details on its nature, membership, procedure and enforcement.    [Back]

Note 47   Such as the principle that all shareholders of the same class must be treated equally (General Principle 1) and the principle that shareholders must be given sufficient information and advice to enable them to reach a properly informed decision (General Principle 4).    [Back]

Note 48   [1987] QB 815.    [Back]

Note 49   See para 1(c) of the Introduction to the City Code, Appendix M below.    [Back]

Note 50   It is outside the scope of this project to consider whether there ought to be some statutory underpinning for voluntary codes of conduct but this may be a matter which is considered in the course of the DTI's wider review of company law.    [Back]

Note 51   [1995] 1 BCLC 14.     [Back]

Note 52   (Unreported) 7 May 1998, Jonathan Parker J.     [Back]

Note 53   [1996] 1 BCLC 155, per Arden J.    [Back]

Note 54   [1994] 2 BCLC 354. On appeal, appeal dismissed 22 May 1996 (unreported). This ground was not considered. See also Re a Company [1986] BCLC 376,389 per Hoffmann J.    [Back]

Note 55   See also Re Chez Nico (Restaurants) Ltd [1992] BCLC 192, 209, where Sir Nicolas Browne-Wilkinson VC said: The [City] Code does not have the force of law. But in considering for the purposes of s 430C whether the court should exercise its discretion, in my judgment the code is a factor of great importance. One of the purposes of the code is to provide protection to the shareholders whose shares are the subject of a bid. Where, under the code, the bidder is himself under a duty to provide such information, substantial infringements of the provisions of the code as to disclosure in my judgment provides strong evidence that the offer is not fairly made: it certainly negatives any presumption that the offer is fair because 90% of the shareholders have accepted it: see Re Lifecare International plc [1990] BCLC 222. I am not suggesting that any infringement of the code (however small) will necessarily lead the court to exercise its discretion in favour of the non-assenting shareholder. But substantial failure by the bidder to comply with the code's provisions as to disclosure should, in my view, be a very major factor operating against the compulsory acquisition of the non-assenting shareholders' shares.    [Back]

Note 56   Section 256.    [Back]

Note 57   Accounting Standards (Prescribed Body) Regulations 1990, SI 1990 No 1667.    [Back]

Note 58   See para 6.14 below.    [Back]

Note 59   Applicable accounting standards are defined in s 256(2) as standards relevant to the company's circumstances and to the accounts.    [Back]

Note 60   Sched 4, para 36A.    [Back]

Note 61   Section 226(2). This requirement overrides the other requirements of the Act and supplementary information may have to be given or the accounts may have to depart from the relevant provisions of the Act; see ss 226(4) and (5).    [Back]

Note 62   See generally on the true and fair view the joint opinions (1983 and 1984) for the Accounting Standards Committee by Leonard Hoffmann QC (now the Rt Hon Lord Hoffmann) and Mary Arden (now The Hon Mrs Justice Arden DBE) published in Accounting Standards 1984/5 at p 178 by the Institute of Chartered Accountants in England and Wales; the opinion (1983) for the Institute of Chartered Accountants in Scotland by J A D Hope QC (now the Rt Hon Lord Hope), and the opinion (1993) for the Accounting Standards Board by Mary Arden QC published as an appendix to the Foreword to Accounting Standards produced by the Accounting Standards Board (June 1993).    [Back]

Note 63   This paper does not deal with a type of company not mentioned in the text, namely the charitable company.    [Back]

Note 64   The figures as to numbers of registered companies in Great Britain and Northern Ireland were supplied by Companies House and the DTI.    [Back]

Note 65   All Stock Exchange figures are for 30 April 1998.    [Back]

Note 66   The total market capitalisation for AIM companies is £6.5bn (as at 30 April 1998).    [Back]

Note 67   See, for instance, Shareholder Remedies (1997) Law Com No 246.     [Back]

Note 68   However, in R I Tricker, Corporate Governance (1984) p 55, it was estimated that the top 50 UK companies had over 10,000 subsidiaries, and other companies in the top 500 UK companies had on average 25 subsidiaries each (excluding dormant companies). This was based on 1981/82 data. (At the end of 1982, there were 807,817 registered companies).    [Back]

Note 69   This is recognised already in, eg, Companies Act 1985, s 321(1).    [Back]

Note 70   Eg para 12.9.    [Back]

Note 71   Now the Insolvency Act 1986, s 214.    [Back]

Note 72   Liability is imposed on the basis that the director should take such actions as would be taken by a reasonably diligent person having both the knowledge skill and experience reasonably to be expected of a person in the same position, and the director's own general knowledge skill and experience. This prevents a director from relying on his own ignorance, and also means that he will be judged by any special qualifications that he had.    [Back]

Note 73   Shareholder Remedies (1997) Law Com No 246. The DTI's Consultative Paper states: "So far as civil sanctions are concerned the Law Commissions have made a valuable contribution in their recent report on shareholder remedies" (para 6.3).     [Back]

Note 74   That is, by one or more shareholders on behalf of the company. The Lord Chancellor's Department has since issued "Access to Justice - Specialist Jurisdictions: Proposed New Procedures - A Consultation Paper" (December 1997), in which it sought views on the Commission's recommendation for the derivative action and certain other recommendations which can be implemented in conjunction with the new Civil Procedure Rules. These are being introduced as part of the current civil justice reforms.     [Back]

Note 75   Under Companies Act 1985, s 459.    [Back]

Note 76   Ibid, at paras 3.26-3.64.    [Back]

Note 77   Ibid, at paras 1.9-1.12; see also Shareholder Remedies, Consultation Paper No 142, paras 14.11-14.13.     [Back]

Note 78   Paragraphs 2.14-2.15.    [Back]

Note 79   This subject is considered at length in Mithani & Wheeler, The Disqualification of Company Directors (1996).    [Back]

Note 80   Section 6; Re Grayan Building Services Ltd [1995] Ch 241. The maximum period of disqualification is 15 years.    [Back]

Note 81   Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164 at p176. As regards the period of disqualification the Court of Appeal provided guidance and introduced a concept of "banding" depending on the seriousness of the complaint. Ibid at 174. There are disqualification periods of over 10 years for the most serious cases, 6 to 10 years for less serious cases, and 2 to 5 years where the case is not very serious.    [Back]

Note 82   For a period not exceeding 15 years.    [Back]

Note 83   Under s 2(1).     [Back]

Note 84   SeeCompanies in 1996-97, Department of Trade and Industry, The Stationery Office (October 1997), Table D1. Figures for the year to 31 March 1998 will be published in October of this year.    [Back]

Note 85   Company law is one of the few areas of private law to be directly referred to in the Treaty of Rome 1957. The main provisions on company law are to be found in the chapter on freedom of establishment, namely Articles 52, 54 and 58. The principal reference is in Article 54, which empowers Community institutions to harmonise national company laws by means of directives. There are also references to company law in articles 220, 235 and 100a. Some 9 directives have now been adopted. However as European economic integration as progressed, reliance has also been placed on articles 235 and 100a in order to create uniform instruments in the interests of a single (European) single market. Where the purpose of an enactment is to make UK law conform to the requirements of a directive, the provisions of the enactment will be construed, if they can reasonably be construed so to do, in a manner which accords with the directive in question even if that involves a departure from the strict interpretation of the provisions (see Pickstone v Freemans plc [1989] AC 66; Litster v Forth Dry Dock & Engineering Co Ltd [1990] 1 AC 546).     [Back]

Note 86   See OJ C240/2 9 September 1998, as published inHarmonisation of Company Law in the European Community - Measures Adopted and Proposed - Situation as at 1 March 1992, Office of the Official Publications of the European Community, ISDN 92-286-4314-X.    [Back]

Note 87   68/151.    [Back]

Note 88   Cooperative Rabobank "Vecht en Plassengebied" B A v Minderhoud (Case C-104/96) [1998]1 WLR 1025.    [Back]

Note 89   The DTI's Consultative Paper states that this is an issue for the wider review (Consultative Paper, p 10, para 3.7). Readers should be aware that this debate exists. The Law Commissions' view is that the value and significance of this project is not undermined by that debate (important though it is) since it is still important to analyse and clarify the duties owed to the company under the current general law and to consider the means by which that law may be made more accessible. However it means that the precise form of any statement of duties may change.    [Back]

Note 90   See eg, Handy, The Hungry Spirit (1997) p 179.    [Back]

Note 91   The DTI's Consultative Paper states that the wider review will provide an opportunity to examine the responsibities of shareholders in relation to directors' pay (p 10, para 3.7).    [Back]